The perennial debate about whether to put profit before people, or vice versa, has been reinvigorated in the aftermath of the financial collapse of 2008 amidst growing anxiety as to how Western capitalism might evolve in the light of emerging alternatives. Yet at the very heart of this debate is the very obvious point that profit and people are always in danger of being diametrically opposed. Profit often appears to come at the expense of people when jobs are cut. Shareholders may think their investments are not best served by putting people first.
Equally obvious to most rational employees is that they are multiple-stakeholders themselves by virtue of simultaneously being citizens and customers as well; dependent on each other for wealth and welfare. This is not that complicated a formula is it? So why do so many CEOs seem to struggle to convince both their employees and their shareholders that this formula can work in everyone’s interest? Maybe it’s because they have not convinced themselves yet: they have not managed to square this particular circle in their own minds, never mind those of their shareholders.
Jack Welch, who became infamous for being ‘neutron Jack’ and ‘forced ranking Jack’, certainly looked after his GE shareholders very well for many years so how did he eventually come to the conclusion in a Financial Times interview in 2009 that
“On the face of it, shareholder value is the dumbest idea in the world”?
Was this really a Damascene conversion at the end of his career or just a very obvious and natural conclusion that anyone as logical and business focused as Jack was bound to reach at some point? Of course pursuing shareholder value, to the exclusion of everyone else’s value and values*, is a dumb-ass idea. Why the hell would rational employees want to give their all to shareholders? What is in it for them? How many of us jump out of bed every morning fired up by shareholders’ selfish interests?
There is no doubting that Jack Welch has to be regarded as one of the most talented managers of the 20th Century but what of his legacy? His views are expressed in a 2010 You Tube interview (9 years after he left GE) along with those of his successor, and current Chairman of the Board, Jeff Immelt. Does their reasoning convince us that Welch and Immelt have revolutionised management thinking from a human capital perspective? Welch’s management methods became standard fare on most MBA classes so students should be asked what lessons can be drawn for the future? To what extent was GE’s business strategy (and therefore its HR strategy) focused just on narrow shareholder interests? Have Jack Welch and Jeff Immelt really unearthed any new management secrets (apparently not if we read the comments posted on the You Tube clip)? If Jack Welch were to run GE again today how would he do it any differently? He is further quoted by the FT as realising that
“Shareholder value is a result, not a strategy …. Your main constituencies are your employees, your customers and your products.”
So would he convince today’s shareholders that a different HR strategy would actually result in even better returns? Would this necessitate a GE strategy that treats its people as both employees and citizens, thereby truly reflecting the society it serves? After all, what form of capitalism can ultimately prevail that does not satisfy society at large? Society can only be expected to wholeheartedly support organisations that have society’s best interests at heart. This is surely the only virtuous circle that can possibly be fashioned from the one-cornered square currently occupied by those shareholders with a narrow field of vision?
The greatest lesson that may yet arise from the present malaise is the realisation that many of our erstwhile ‘leaders’ actually have no idea how to help produce a more enlightened form of capitalism; one that can continue to compete successfully against any variant on the horizon. Perhaps that is Leadership Secret number 30 that will eventually rise to the surface on MBA and leadership programmes?